The Real Consequences of Declaring Bankruptcy

by Fox Symes on December 19, 2013

When our finances tumble down around our ears and debt consolidation seems like a far-away fantasy, it feels rational to forsake the light at the end of the fiscal tunnel and declare bankruptcy. The slate is clean and your past is now firmly behind you, the debt collectors have moved onto another phone number and address, and you’ve achieved a sort of inner peace that is borne of certainty. You’re certain you won’t accumulate interest on zero dollars. While this is a comforting thought and may sustain faint feelings of satisfaction for a while, bankruptcy is no holiday. While your record might be sparkling new in your eyes, in reality, it represents a big black mark against your name for years to come.

Are you a Residential Co-Owner?

Nobody wants to admit to their partner they’re having trouble handling the household finances and blowing out the budget by taking out yet another credit card. Aside from the psychological and emotional issues that may occur, throwing in the towel and getting a bankrupt stamp isn’t going to make it any easier. In fact, you may lose your house. Your nominated trustee has the responsibility of selling off non-essentials to benefit those you owe, repaying your debts and balancing the ledger; if you co-own property, it doesn’t matter, the trustee can sell your half of the property. At best, your other half can the purchase that same half from the trustee; at worse, you may end up moving out, as the new co-owner buys your partner out. Are you a sole owner? Your house or business may go completely.

Lifestyle Changes

Do you work hard, make a fair smack of cash and enjoy the lifestyle it affords you, even a little too much from time to time? While you won’t be sentenced to destitution, the quality of your possessions may change, from your computer system to your favourite car. If you aren’t big on a sweet set of wheels, this might not hit you so hard, but any vehicle exceeding a certain value will be sold and the returns recovered by your trustee. Looking to upgrade your phone sometime soon? Most carriers won’t sell contracts to bankrupt individuals, as each application is credit tested before approvals take place – if you’re knocked back, you may be facing another few years on pre-paid, with a broken or outdated handset. From the most serious events (a lottery win) to the simple matter of taking a short holiday, once you declare bankruptcy, you have no control of your life.

Income – Working for the Man

Do you remember when you were making a pittance and paying most of it back to cover your education loans and first car debts? Apply that to your life now and be prepared to surrender your income once you earn past a pre-determined threshold, currently standing at just over fifty thousand after tax. It may not be enough to keep up with your lifestyle – things will change completely and irrevocably, even after bankruptcy.
Before you wave the white flag, contact a debt consultant and explore your options. Bankruptcy should always be a last resort.